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Court Takes Case Alleging Sex Bias In State Annuities

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Washington--The U.S. Supreme Court, in a move that could have broad ramifications for the nation's teacher-retirement systems, last week agreed to review a lawsuit that challenges sex-based inequities in Arizona's public-employee annuity plan.

The Court has been asked to decide whether the use of insurance mortality tables in administering the plan violates Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment on the basis of sex and race.

According to a report conducted by the Rand Corporation for the National Institute of Education in 1980, all state-operated teacher-retirement systems offer such annuity options to their employees.

The report also noted that if a teacher does not elect any other pension options offered by his employer, his pension is automatically paid out under an annuity scheme of the type now facing review by the Court.

According to 1977 Labor Department figures, 34,200,000 American workers are enrolled in 132,400 "defined benefit" plans--plans, such as those affecting many school employees, that pay equal retirement benefits to men and women; another 15,500,000 workers are enrolled in "defined contribution" plans--those that are based on actuarial tables that make distinctions in benefits paid based on differing mortality statistics for men and women.

If the Court rules against such tables in the Norris case, said one insurance-industry analyst, "every single person in the defined-contribution plans will be affected, regardless of whether or not there are even any women in an individual plan."

But since the type of coverage available to educators in state and local systems appears to vary widely, it is difficult to estimate how many nationwide could be affected.

A further complication, an executive with a major private insurance firm pointed out, is that some educators may have chosen to enroll in individual retirement-investment plans with insurance companies offered as a service through their school systems.

Such retirement-savings plans, though not administered by a state or school system, would nonetheless be affected by a Court decision opposing the current sex-based actuarial tables.

Several union officials and retirement consultants contacted last week said that they could not say with a great degree of certainty just how many retired teachers now receive annuity payments, but at least one indicated that the figure could be as high as 50 percent.

Nor were experts able to say with any confidence just how extensive the impact on teacher-retirement systems would be should the Court rule that such annuity plans are discriminatory. The American Council of Life Insurance, in a friend-of-the-court brief filed in the case, contends that a decision in favor of unisex annuity benefits would cost $2 billion per year. The council says that about 37,500,000 men and 16,600,000 women are involved in pension plans that could be affected.

Court-Ordered Remedies

Others suggest the impact would depend on a number of factors, such as the kinds of remedies the Court would order; when such remedies would become effective; and whether they would cover people now receiving benefits, people in the systems who have not yet retired, or those just joining such systems.

Spokesmen for the insurance industry were outspoken in their conviction that a ruling that discrimination exists would "revolutionize" the industry and could lead the whole retirement system in the U.S. into insolvency.

The lawsuit now facing Supreme Court review, Arizona Governing Committee v. Norris, was initiated by a female employee of the Arizona Department of Economic Security.

She charged in her lawsuit that use of the actuarial tables results in illegal discrimination because they reflect that women live longer then men. Because the tables reflect a longer life expectancy for women, she claimed, the insurance company managing the annuity plan for the state made smaller payments to women than to men, even though men and women pay equal amounts into the plan.

Attorneys representing the state and the insurance company argued, in part, that such a scheme is legal because male and female retirees, over the course of their lifespans, receive total annuity payments that are nearly equal.

A federal district judge in Phoenix and the U.S. Court of Appeals for the Ninth Circuit have ruled that use of the sex-biased tables does indeed violate federal laws barring sex discrimination in employment.

If those rulings are upheld by the Supreme Court, the state and the insurance company managing the annuity option will have to come up with funds to increase annuity payments for women or will have to reduce payments for male retirees.

According to the National Education Association, approximately 60 percent of the beneficiaries enrolled in the Arizona retirement system are former teachers. Officials for the national teachers' union did not know how many of those former teachers in Arizona participate in the annuity plan.

Several lawsuits involving allegations of sex discrimination in teacher-retirement programs have been percolating in the courts for several years now.

Among the more noteworthy are:

Spirt v. tiaa\cref and Long Island University. The Teachers Insurance and Annuity Association and the College Retirement Equities Fund is currently petitioning the Supreme Court to hear this lawsuit along with the Norris case, according to Donald S. Willard, executive vice-president of the pension program.

A. Richard Belding, director of business services for the National Association of Independent Schools, said that "probably something like 80 or 90 percent" of the association's member schools in the East use the retirement-annuity plans offered by tiaa-cref

In addition, approximately 85 percent of all private colleges and 40 percent of all public colleges and universities in the nation use plans offered by the firm.

Overturn Verdict

tiaa-cref has asked the Supreme Court to overturn a verdict by the U.S. Court of Appeals for the Second Circuit, which ruled that the use of sex-based life-expectancy tables was in violation of Title VII.

The court said that tiaa-cref was an employer subject to equal-employment guidelines that do not discriminate between men and women, while the actuarial agency argued that it is an insurance company and not an employer of policyholders.

An important concern of tiaa-cref is that if the Supreme Court decides against the use of separate tables and asks actuarial firms to pay retroactive benefits, these benefits be paid from the time set by the court and not set back to 30 years earlier when a beneficiary began making contributions to the program.

Probe v. California State Teachers Retirement System. This case is currently pending before the U.S. Court of Appeals for the Ninth Circuit, which ruled in favor of the state employee in Arizona's Norris case.

In Probe, sex-biased actuarial tables are also at issue. This case, however, was brought by a male teacher. The teacher claims that he has been unfairly forced to accept reduced pension payments in order to protect his wife's benefits should he die.

According to W. Ronald Brown, a retirement consultant for the California Teachers Association, "If a male names his wife as his beneficiary, he will receive approximately 79 percent of the maximum pension benefit allowable."

"On the other hand," Mr. Brown continued, "if a woman names her husband as her beneficiary, she will receive about 82 percent of the same maximum amount allowable."

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